Last updated on November 22nd, 2021 at 09:01 pm
Have you driven down the street and seen those signs stuck on lawns, nailed to telephone poles, and otherwise scattered about? “We will pay cash for your home!” Perhaps you have thought that it would be nice to get cash for your home quickly. Your house may need lots of maintenance and you are thinking that you can sell it fast by calling the number on one of those signs. Or, perhaps you are among the many who wonder if these people are for real.
Since I do not know the author of the sign, it is impossible to say that they are legitimate businesses. What would be safe to say is that they are real estate investors who want to buy your home on the cheap and flip it to make a profit. In many cases that profit comes out of your pocket if you sign up with them. Some of these individuals and companies are not legitimate but many are. This is how it works;
You contact the number on the sign and you receive a visit. During the conversation, they want to know how much you owe on the property. This is important as you will see later. They will tell you the following:
- No home inspection
- No termite inspection
- No waiting for weeks for closing
- No waiting for a buyers lender to complete the process
- No real estate sales commission
- And more
All of that may sound good to you so they make you an offer on the spot or contact you shortly after. That offer will be below market value for your home. Why? how can they make any money if they pay you market value and sell it for market value? They must buy your home for a substantial discount e.g. 25-50% lower than the market value for the property as it sits.
If you agree, you could have cash in as little as a week or two. You sign a deed and they give you a check. Since the buyers are not real estate agents (they may be but are not writing up the offer as agents), most rules for property transfers do not apply to them. They do accept all risks with your property assuming that the contract includes the appropriate wording.
Some of these individuals are “wholesalers”. Businesses or often individuals who look for distressed properties (that is what they call your property). The usual pitch is that they will offer you $x for your property similar to the above. You sign an agreement with them that has a long closing date and opt-out clauses e.g. not able to obtain funds for closing.
As soon as they sign the agreement, they take it to one of the numerous investors that they bird dog for and find one that will buy the contract. Yes, that’s correct, the actual buyer will not be the person you signed the contract with. That person has no money, they could not afford to buy your property (in most cases). The investor steps up and after closing pays the person who brought the deal to them a fee of about $2,000 or less.
Some investors after buying the property will put money into it and put it back on the market (flip), others will just list it as-is and put it back out hoping to make a quick $5,000-$10,000 in profit. In all of the scenarios, the purchase happens fairly soon.
I mentioned that they ask you how much you owe. That’s very important, this tells them about how much they need to pay you. The object is to close the deal and insure of course that the note is paid. They look at the difference between market price and the amount you owe as their potential profit fewer expenses. More often, your offer will be just above the pay off allowing you to receive a few thousand dollars as an incentive to sell. Under this scenario, the price they offer you is not connected to market pricing but more at getting the property for the lowest possible cost.
The process for the most part is entirely legal. The roadside signs are not the only way these people work. They often contact people who have just lost a spouse and may need to sell their home. I was told in a seminar that one person knocked on the door of the deceased persons’ house to find an after-funeral gathering. The person told the group that he asked to speak to the widow (asked by name) and tried to make her an offer on the spot.
Some individuals go through the court records for divorces and contact the parties about selling.
I am not judging people who work in this manner, offering people less than the market for their property. If people did not sell their homes to these people they would be cutting lawns or frying burgers. Here is my advice to anyone who is considering working with a cash buying company.
- Consult a real estate agent if you are considering selling your house. The cost is free in most areas
- Your real estage agent can tell you about how long it may take to sell your house based upon current trends
- The real estate agent will tell you what you should expect to get from the sale of your house.
- If you must call the number on that sign, you now have a price to compare with.
- List with a real estate agent if you want the most for your house and can wait for a buyer to sign a contract and close.
- If you decide to use one of those sign people, have your attorney look over the sales documents before you sign.
You have to admire the entrepreneurial spirit of people who what to get something for nothing. These mostly young people have perhaps bought a course online that teaches them how to approach homeowners and convince them to part with their most valuable possession for less than what it is worth. They are hoping you are not looking at Zillow, Realtor, or other websites to see what homes in their neighborhood have sold for. Frankly, the only thing they have to offer is speed. If you can wait you will be rewarded with extra cash.
